May 3 (Bloomberg) -- Berkshire Hathaway Inc. shareholders
missed out on better returns from the Standard & Poor’s 500
Index by sticking with Chairman Warren Buffett after each of his
last three annual meetings.

Berkshire fell 2.4 percent from the firm’s April 30, 2011,
meeting through yesterday, compared with the 2.8 percent advance
in the S&P 500. This year’s gathering, planned for May 5 in
Omaha, Nebraska, concludes three years in which Berkshire
climbed about 32 percent, trailing the S&P 500’s gain of around
60 percent.

Buffett, 81, is seeking to reassure investors that the
$200 billion company he built over 42 years as chief executive
officer is positioned to thrive after his eventual departure.
Growth slowed in the last 15 years as Buffett, a former hedge
fund manager, directed Berkshire’s earnings toward takeovers in
industries like machine tools, power production and railroads.

“They’re very steady, but they’re not necessarily fast
growers,” Cliff Gallant, an analyst at KBW Inc., said about
Berkshire operating units. A “lack of clarity” about Buffett’s
successor may also be weighing on the stock, Gallant said. He
rates Berkshire “outperform.”

Buffett beat the market between the 2008 and 2009 meetings
as the financial crisis pushed the S&P 500 to a 38 percent drop,
compared with a 31 percent decline at Berkshire. The equities
rally since then has more than tripled broadcasting and Internet
retail stocks and doubled railroad shares. Electricity producers
have gained about 25 percent. Berkshire generates power through
it MidAmerican Energy Holdings unit.

Buffett’s Fast Start

Berkshire surged in the first 25 years of Buffett’s tenure
as he transformed a textile maker into an insurer and placed
winning bets on stocks like Capital Cities/ABC Inc. and Coca-Cola Co. As profits grew, Buffett reduced his focus on insurance
and stock picking and increased his concentration on bidding for
whole companies.

The 2010 acquisition of railroad Burlington Northern Santa
Fe required Buffett to pay 31 percent more for each of the
railroad’s shares than the price before the deal was announced.
The $9 billion purchase of Lubrizol Corp. last year was 28
percent more than the stock-market value of the engine-additives
maker before the transaction. Berkshire units, like Lubrizol and
Burlington Northern, operate mostly independently.

“You buy public companies like Lubrizol, and you don’t
change anything,” said Jeff Matthews, author of “Secrets in
Plain Sight: Business & Investing Secrets of Warren Buffett”
and a Berkshire shareholder. “So how is that worth more than
you bought it for?”

IBM Investment

Buffett spent more than $10 billion buying stock in
International Business Machines Corp., the company said in
November.

The U.S. housing slump and Buffett’s bets in energy markets
have weighed on Berkshire’s results. The company wrote down debt
holdings in Energy Future Holdings Corp. by $390 million last
year and $1 billion in 2010 and may record further losses,
Buffett said in February. Berkshire had $3.1 billion of
impairments in the first quarter of 2009 as Buffett said he paid
too much for shares of oil producer ConocoPhillips.

Buffett erred in early 2011 when he predicted a housing
recovery within a year or so. Pretax profit in 2011 at
Berkshire’s carpetmaker Shaw, insulation provider Johns
Manville, Acme Brick and MiTek, a maker of building products,
was $513 million compared with $1.8 billion in 2006 before the
housing slump.

Record Earnings

Buffett is counting on record earnings of more than $10
billion this year from Berkshire’s five biggest non-insurance
subsidiaries: Burlington Northern, MidAmerican, Lubrizol,
toolmaker Iscar Metalworking and industrial conglomerate Marmon
Group. All were acquired in the past 13 years as Buffett
expanded beyond underwriting units like Geico Corp., General Re
and National Indemnity.

“The power of what’s there is extraordinary,” said
Charles Akre, CEO of Berkshire shareholder Akre Capital
Management in Middleburg, Virginia. “The thing that one must
reasonably think about is, ‘How will this be split up at some
point?’ Because it’s likely that it will.”

Buffett and the board, which includes Microsoft Corp. co-founder Bill Gates, are preparing Berkshire for its second
generation of leaders. Former hedge fund managers Todd Combs and
Ted Weschler were hired to eventually take over the securities
portfolio of more than $100 billion. Howard Buffett, a son and a
Berkshire director, would help maintain the firm’s culture as
non-executive chairman, Warren Buffett has said.

Buffett’s Cancer

The CEO said April 17 that he has stage 1 prostate cancer
that is “not remotely life-threatening or even debilitating in
any meaningful way.” Buffett plans to begin a two-month
treatment of daily radiation in July. The regimen will restrict
his travel during the period and not otherwise change his daily
routine, said Buffett.

The Berkshire board has agreed on Buffett’s successor as
CEO, without publicly disclosing who it is.

Buffett changed the annual-meeting format this year by
inviting three financial analysts to join shareholders and a
panel of three reporters in posing questions. Gallant and Jay
Gelb of Barclays Plc, two of the analysts selected by Buffett,
recommend buying Berkshire shares. Gary Ransom of Dowling &
Partners Securities LLC, the third analyst, wasn’t made
available by his firm to speak about Berkshire.

The analysts were added to help focus the discussion on
Berkshire’s business and allow less time for shareholder
questions about Buffett’s life and celebrity. Buffett, the
world’s third-richest person, may be pushed to discuss politics
after a year in which he antagonized Republicans on tax policy.

On Stage

Buffett and Berkshire Vice Chairman Charles Munger, 88,
typically take questions for four or five hours from a stage in
Omaha’s CenturyLink Center. Shareholders, who fly from around
the world to attend the annual meeting, line up from 4 a.m. to
secure a place in the 18,000-seat arena or in one of the
adjacent overflow rooms where the event is shown on closed-circuit video.

Buffett has been criticized by politicians as the
billionaire collaborated with President Barack Obama to push for
higher taxes on the wealthy. New Jersey Governor Chris Christie
said in February he was tired of Buffett’s advocacy and the
investor should “just write a check and shut up.”

“It’s not just that people will disagree with you, it’s
that they’ll disagree with you vehemently and attack you
personally,” said Meyer Shields, a Stifel Nicolaus & Co.
analyst with a “hold” rating on Berkshire. “Indirectly, he’s
causing his reputation to be damaged, and his reputation I think
is still a big part of the Berkshire Hathaway investment
story.”